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Analysis

Novel Drug Financing Models for Innovative Medicines

By Miriam Bello | Fri, 08/06/2021 - 16:02

With chronic disease death rates climbing, the motivation for drug acquisition has moved beyond short-term economic savings to long-term sustainable finances with the goal of maintaining a healthy population. As a result, novel payment models are surging between healthcare payers and pharmaceutical companies to continue fomenting innovation, while keeping the patient at the center of the healthcare model and avoiding skyrocketing treatment prices.

Diego Guarin, Regional Market Access Lead for Latin America of Merck MSD, explained to MBN that improving the health of the general population is not only about bringing innovations that offer better efficacy and/or safety but also about fulfilling patients' expectations and improving other variables, such as people's quality of life or work productivity. “For this to become a reality, the patient has to be at the center of what the public healthcare system does,” he said.

Financing is necessary to maintain the quality of drugs as it translates to scientific discoveries and useful therapies, which directly impact patient health and life expectancy. Regular financing schemes include direct purchasing, while some companies might also turn to debt acquisition or equity investment. The direct purchase model, however, has fallen short in propelling R&D as shown by the rising death rates due to chronic diseases, such as cardiovascular disease, diabetes or cancer.

The book “Guide to Drug Financing Mechanisms” by German Velásquez, Jérôme Dumoulin and Miloud Kaddar and backed by WHO explains that direct purchasing implies a blind confidence in the product. A buyer puts confidence in a producer because the latter has a monopoly over a product, because it is not possible to verify the quality or the level of prices, due to the positive results of earlier purchases or because the producer has a good reputation.

Under the direct purchasing scheme, financial savings are the drivers for treatment acquisition and there is little focus on the patient outcome. “It is not sufficient to select drugs only according to cost; some level of cost and effectiveness should be maintained,” say the authors on their book. This level is established relatively empirically depending on criteria such as diseases present in the country, the availability of skills and technical resources to make good use of drugs, the financial resources for drug procurement and whether drugs are manufactured within the country. Which criteria will govern drug selection depends on national health objectives and the context in which the drugs are used.

As the healthcare sector evolves, many changes to this financial scheme are starting to emerge as health systems seek to adapt to a preventive culture that, according to the NHS, would have a much more visible and cost-effective result for governments and patients.

Value-Based Pricing

Also known as payment-by-result, this rising financing model is based on the assessment of the therapeutic value of medicines. According to WHO, value-based pricing can lead to a reduction in prices for medicines with no or limited added value and an increase in the price of medicines with high value, which in turn may encourage manufacturers to focus their R&D on therapeutic medicines with superior benefits for the patient. Measuring the outcomes and quality of medicines is a complex, personalized model, so the NHS encourages health systems to first determine a definition of quality of care to later choose a robust method to examine the outcome, such as survival rates or recovery progress. The NHS recommends to always complement these outcome examinations with patient follow-up to minimize variations beyond the control of healthcare providers.

Managed-Entry Agreements

According to a study made by the EU, managed-entry agreements (MEAs) are confidential agreements between pharmaceutical manufacturers and payers (hospitals, social insurances) negotiated when there is uncertainty regarding the expected outcome of medicines that require high public expenditures.

MEAs increase accessibility and can be a useful tool to promote technology and optimize its use. However, these are administratively complex agreements and may be difficult to negotiate. Moreover, their effectiveness has yet to be evaluated, explains the EU study. MEAs appear not to be designed for a long-term model, as they address the issue of uncertainty regarding the effectiveness of the medicine but not the high prices or the rising pharmaceutical expenditure.

Mexico’s Opportunities in Novel Financing Models

Guarin explains that value-based pricing is the current trend in the industry, as it is formulated around an entire integration of the health system with a patient-centric view. However, he explains that for Mexico to correctly implement this model, all industry stakeholders need to be on the same page. In Mexico, financers include the public social security systems (IMSSS, ISSSTE, PEMEX, SEDENA/SEMAR, ISSSEMyN) and private health insurers with different levels of vertical integration with their networks. There are also providers, which include healthcare professionals (HCPs) and healthcare organizations (HCOs), such as hospitals and clinics that are usually paid based on the services rendered. Finally, there are patients that contribute their premiums via payroll taxes or employer/employee contributions. “We think the system should be driven by aligned incentives to improve health outcomes,” said Guarin. “Those who deliver the best results can be rewarded financially or with a reputation ranking, for example.”

Sandra Ramírez, General Manager of Bristol Myers Squibb Mexico and Colombia, explained to MBN that these types of models also require a solid legal framework and infrastructure that allows management verifiers, actively involving the national government.

Moreover, Fernando Cruz, Country President and Head of Corporate Affairs and Communication at Novartis Group Mexico, told MBN that to begin applying this model, first a country needs to identify an area or disease to begin its implementation. “There is still a long way to go but in Mexico, talks for applying this payment scheme for ailments such as multiple sclerosis or blindness caused by diabetic retinopathy have already started,” said Cruz.

Just as the NHS encouraged, José Arnaud Coelho Director General of Merck Group Mexico, highlighted during an interview with MBN that without the proper follow-up or adherence to treatment, products will not have the desired outcome for the patient. “Sector’s authorities are not yet addressing that,” Coelho said.

A study by MSH explains that the success of these novel methods depends on political commitment, as the government plays the largest role in their adoption. However, a good way to start, according to Javier Pico, Partner at LSC, is through private companies. “(Companies) need to create that value-added picture themselves,” he told MBN. “Unfortunately, the Mexican government is not thinking about what specific medication to buy. It is deliberating whether to spend US$1 on COVID-19 machines, on diabetes or on cancer and it is not looking at the broader picture.”

Miriam Bello Miriam Bello Journalist and Industry Analyst